A Brighter Tomorrow

With the country facing enormous challenges and few solutions in sight, we convened a Diablo Think Tank to ask some of the brightest minds in the East Bay a not-so-simple question: How do we fix it? Here’s what they said.

By Justin Goldman

Published: December 16, 2011

(page 1 of 4)

Key to topics:

Politics Social Security Health Energy Education Economy

"Craft a New, Smarter Stimulus to Create Jobs"

Jack Rasmus

Expert on Economics

Professor, Saint Mary’s College

Jack Rasmus is a professor of economics and politics at Saint Mary’s College who has closely studied the current economic crisis and the government’s response to it. His latest book, Obama’s Economy: Recovery for the Few, due out in March, offers a number of alternative responses to what he calls our “epic recession.”

Can you explain the current economic crisis, which many people find to be very complex?

Understanding what needs to be done requires understanding what happened and why it didn’t work up until now. We are in a unique kind of a contraction. It’s not a normal recession. Therefore, normal policies—tax and spending, interest rates and so forth—have not gotten us out of it.

We didn’t get a broad-based recovery. Why is that? In the $787 billion [stimulus package], about 38 percent was tax cuts and another 38 percent was subsidy spending—meaning money given to the states, to the unemployed, subsidizing health care costs, and so on. And maybe about 10 to 15 percent was in long-run infrastructure projects.

My argument is that that was ineffective on three accounts. First of all, in this kind of a financially induced contraction, you have a problem with confidence. And tax cuts do not get translated into investment, which is what you need to create jobs. They get hoarded. And business needs to be able to see people who are going to buy their products.

[Second,] Obama’s fundamental strategy was: We’re going to give subsidies to the states; we’re going to give subsidies to the unemployed; and that will buy us a year, after which the tax cuts will take effect, and the spending will occur. But the spending did not occur. … Subsidies don’t create jobs. You need to invest and create jobs to have a true sustained recovery.

And then we had another 10 percent, 15 percent in long-term infrastructure, alternative energy, electrical grid, and all this stuff. It did not have a short-term impact. So, we’re stuck three years later with the number of unemployed we had three years ago: 25 million people [according to the U-6 unemployment rate].

There are three areas that Obama has not addressed. One, jobs: With 25 million people unemployed, you’re not going to get consumption. There’s been no real jobs program except tax cuts. Second, housing: There’s been no housing program. [Third,] Obama never fundamentally addressed the problem of the state and local government financial crisis. He gave them temporary subsidies. So, we have those three crises that have not been addressed policy-wise that are causing us to be stagnant and bouncing along the bottom.

“You need to invest and create jobs to have a true sustained recovery.”

So what do we do now?

One of the hallmarks of the last three years is that large corporations are sitting on $2 trillion in cash, not investing it. At the same time, the Federal Reserve spent $9 trillion to bail out the banks. We gave them a lot of liquidity, but we didn’t get rid of their bad debts. So, the banks are reluctant to lend, mostly to small and medium business—construction firms and retail and so forth. In other words, the money that went to the bailout got bottled up.

Somehow, you’ve got to restructure the banking system so the banks will lend.

We need to create a utility banking system in this country. What that means is that the government becomes a bank for consumer loans and consumers only. There’s no reason why the government should not issue money—not through the banks, but directly—to stimulate housing. We could be loaning people money to buy homes at 3 percent—the 30-year bond rate. That would stimulate the housing industry.

The government owns most of these [bad] mortgages. They’ve been sold to Fannie Mae, Freddie Mac. The government could go in there and say, OK, we’re going to adjust the principal and interest so you can stay in your home, or so your home isn’t negative equity. That would free up an awful lot of money for consumption.

Now, on jobs: If business won’t invest in jobs, the government has to directly invest in jobs. To do that, you need to reform the tax system and tax structure in order to spend on direct job creation—short-term, immediate job creation—without increasing the deficit.

So, raise taxes.

Now, where would you raise taxes? You’ve got $1.4 trillion—multinational corporations holding their cash offshore. Not bringing it back because they want to avoid the 35 percent corporate tax rate. There’s also about $4 to $6 trillion that’s been put in 27 offshore tax shelters in the last 30 years. That’s where all the wealthy in the world are stashing their cash so they don’t pay their taxes. Repatriate that.

And the dividends and capital gains tax rate at 15 percent is ridiculous. We’ve never had a situation where it was so low and so far below the actual top income tax bracket. The top income tax bracket is 35 percent, but the wealthiest 1 percent of households pay on average about 16.6 percent. There’s no reason why they shouldn’t be paying the historical long-run average that they had been paying until George [W.] Bush came into office.

You’ve got to attack debt, and you’ve got to attack income distribution, if you want a long-term, sustained recovery.

Speaking of debt, what about cutting the deficit?

If you think austerity works, look at Greece. You cannot deficit cut your way out of a recession; it’s just not possible. It’s not that fiscal policy is wrong; it’s that the type of fiscal policy was ineffective. [The stimulus] was a terribly crafted recovery package, and we’re seeing the consequences of that. [But] austerity will work even less. We are on our way—with a recovery that can’t get going— into a double dip. And we’re going to cut even more.

Faces

During the fifth annual Celebrate John Muir Health gala, more than 700 guests gathered at the Concord Jet Center at Buchanan Field and enjoyed cocktails,
a stellar dinner, music, dancing, and a live auction. The sold-out, outer space–themed party raised a record $2.25 million to support John Muir Health’s neurosciences services.

The Redford Center held its inaugural benefit at August Hall in San Francisco, honoring rapper Jaden Smith with The Robert Redford Award for his environmental activism. After the ceremony, guests enjoyed libations, bites, and a performance by actor Sean Hayes—raising more than $275,000 for the environmental nonprofit.

Common Sense, one of the nation’s leading technology nonprofits, held its 15th annual celebration at San Francisco City Hall. The night consisted of a cocktail reception and a sit-down awards dinner that recognized the visionary policy-makers, educators, and media creators—including Oakland native and Black Panther writer-director Ryan Coogler—who are helping children thrive in the digital world.

Pledge to Humanity hosted its 10th annual fundraising gala at the Round Hill Country Club in Alamo, bringing in more than $300,000 for the nonprofit’s local and international programs that empower young change-makers to participate in service opportunities. The soiree featured a cocktail reception with hors d’oeuvres, a multicourse dinner, live and silent auctions, and dancing.

Approximately 150 gardening aficionados came together at the Hilton Concord to support the Ruth Bancroft Garden in Walnut Creek and raised $72,000 over the course of the evening. Attendees were treated to dinner, drinks, auctions, and a magic show. Walnut Creek Councilmember Cindy Silva was honored with the Golden Barrel Award for Philanthropy on behalf of the garden.

Oakland’s Chabot Space and Science Center transformed into a magical, mysterious wonderland for its annual gala, which raised more than $240,000 for science education. The evening featured specialty cocktails, a multicourse
dinner, a live auction, and a Halloween-themed after-party.

Approximately 1,400 people participated in the annual family-friendly fundraiser at Pleasant Hill Middle School, which featured an array of activities—including mini golf, carnival games, face painting, and a pumpkin patch—as well as food trucks, music, and dancing. Proceeds benefited the Down Syndrome Connection of the Bay Area, which has provided vital programs, resources, and support for individuals with Down syndrome for 20 years.

In celebration of its popular November food issue, Diablo magazine hosted its 15th annual culinary extravaganza, which brought in nearly $4,000 for the Food Bank of Contra Costa and Solano. Guests came together in Walnut Creek’s Broadway Plaza to enjoy mouthwatering fare from top East Bay restaurants; pours from numerous wineries, breweries, and distilleries; and DJ beats.

East Bay arts supporters found themselves in good spirits at this fundraiser for the Lamorinda Arts Council, as they sampled more than 20 craft cocktails created by local bartenders vying for the Audience Favorite, Art of Staging, Top Amateur, and Mixologist of the Year awards. The cocktail tasting and competition took place at Orinda Theatre Square and raised more than $10,000.

More than 120 guests joined Contra Costa Oncology for a Mexican-
themed bash at Rotator Taproom in Walnut Creek, raising nearly $5,000 for the Cancer Support Community San Francisco Bay Area. Attendees noshed on tasty bites from the Madd Mex Cantina food truck, sipped micheladas and beer, and donned mustaches in honor of Movember—an annual multinational event that encourages men to grow mustaches to raise awareness of men’s health issues.

Metallica and Janet Jackson headlined the ninth annual benefit concert for UCSF Benioff Children’s Hospitals. Thousands attended the performances at Bill Graham Civic Auditorium and Civic Center Plaza as well as the pre- and post-show parties in San Francisco City Hall, raising $10 million for medical research.